Tuesday, November 11, 2014

On the Move: Toll Brothers Rise 3.3%; J.C. Penney Drops 5.6%; Norfolk Rises 2.6%

Norfolk Southern (NSC), Toll Brothers (TOL) and J.C. Penney Co. (JCP) are just some of the stocks moving during today’s market action: Here's a rundown:

Toll Brothers rose 3.3% to $33.29 after the home builder posted better-than-expected revenue for the quarter ended Oct. Sales surged 29% to $1.35 billion, lifted by strong demand in the home builder’s West Coast division to top the $1.31 billion expected by analysts. Leucadia National (LUK) has been among the worst performers of the S&P's 85 financial stocks. Today, the shares gained 1.4% to $24.13 after Barron's editor Andrew Bary referred to the company as "A Mini-Berkshire At a Bargain Price." The stock has been hurt by low returns outside Jefferies, the investment bank it bought early y last year. Still, many of its other business arte valuable, including Berkadia, a 50/50 joint venture with Berkshire How about the real Berkshire Hathaway (BRK.B)? Warren Buffett’s holding company rose 0.75% to $144.68 after it posted Friday a drop in profit tied to an investment loss. Still, results overall beat expectations as the company's railroad arm and other units continued to ride a rebounding U.S. economy. J.C. Penney dropped 5.6% to $7.38 after Barron's writer Jack Hough warned readers that the troubled retailer may have set unrealistic financial goals. At its Oct. 8 analyst day, Penney set a goal of $1.2 billion in earnings before interest, taxes, depreciation, and amortization, by 2017, or close to four times this year's estimate. To get there, requires lifting sales at longstanding stores by 5.4% a year, boosting gross margins, and holding spending flat. Norfolk Southern surged 2.6% to $115.89 after Barron's writer Robyn Goldwyn Blumenthal weighed in bullishly on the stock amid merger talks within the railroad industry. Talks have circulated of a deal between Canadian Pacific (CP) and CSX (CSX) but fell apart last week. On Friday, hedge fund manager Bill Ackerman speculated that Canadian Pacific was could buy another rival. The next day, Blumenthal argued that regardless of Canadian Pacific's intentions, Norfolk is the better bet for investor due to valuation and future growth opportunities. McDonald’s (MCD) rose 0.3% to $95.13 Monday after the restaurant chain said its October sales held up better than expected with global sales dropping 0.5% in October to beat the 2.2% decline analysts were expecting. Sotheby’s (BID) rose 4.8% to $41.36 after its third-quarter loss narrowed as the auction house benefited from lower costs and a higher tax benefit that offset a decline in revenue. WhiteWave Foods (WWAV) dropped 3.2% to $35.75 after the food company reported a 34% rise in revenue during the third quarter, boosted by its Earthbound Farms acquisition and sales in Europe.

Saturday, November 8, 2014

Sears ‘Cannot Be Accused of Not Trying,’ Credit Suisse Says

Shares of Sears (SHLD) have popped today after the beaten-down retailer announced that it could pursue forming a real-estate investment trust. Credit Suisse analyst Gary Balter and team note that “the story opens a new chapter; the ending looks the same.” They explain why:

Associated Press

A few months ago, Sears highlighted how it had not disposed of any of its core locations, and those people arguing differently don’t understand the turnaround story. Yet since that time, the company subleased its remaining space in the King of Prussia mall and this morning disclosed that it sold its location in Cupertino, again one of the better locations in the country, and
more important, the company announced that it is exploring a REIT with between 200 and 300 properties, an interesting development for at least two reasons.

First, to do the REIT, the comprising Sears or Kmart stores have to generate enough free cash flow to pay the rent, so we assume given overall financial results that these are the best performing stores out of nearly two thousand that would qualify. Second, by playing the REIT card, Sears is using what the bulls on the stock have long argued is the real value in the company, its real estate. Doing this transaction leaves Sears with very few other assets to sell, so while the company seemed quite pleased with losing $300 million in EBITDA (at the midpoint of guidance) again this quarter, we still need to see evidence that the company can significantly reduce its operational cash burn to be considered a long-term viable competitor.

Still, Balter is willing to give CEO Eddie Lampert “significant credit for his
efforts not just to monetize the good assets, but to focus on the larger money losing categories…Sears cannot be accused of not trying.”

Balter says the sale of the Cupertino location and the sublease of others should be good news for Home Depot (HD) and Lowe’s (LOW), while its decision to reduce exposure to big-screen TVs could give a small benefit to Best Buy (BBY).

Shares of Sears have jumped 31% to $42.82 at 12:59 p.m., while best Buy has gained 0.9% to $35.53, Home Depot has ticked up 0.2% to $97.45 and Lowe’s has risen 0.7% to $57.97.

Wednesday, November 5, 2014

NVIDIA: A Safe Bet For Investors

NVIDIA (NVDA) is an established name in Graphic Processor Units (GPU). The company's latest quarterly results were strong. This is a good sign for the company as well as investors who had patiently waited for some extraordinary growth.

The company's sales in the past were in the doldrums with the sun setting over the PC market, but this was offset by growth in high-end gaming GPU sales. Although the market for mobile gaming and next generation gaming consoles has been rising, NVIDIA was still focused on the declining PC market. This further created a dent in sales figures for a player like AMD (AMD), which was not as focused as NVIDIA in this market.

Now, with analysts reporting a rebound in the PC market, this should further help NVIDIA improve. In recent times, NVIDIA has been impressive with latest new products that have enabled it to make a U-turn in its business. New growth opportunities in the vehicle infotainment segment can be catalysts for NVIDIA's growth. As per IHS, global sales of infotainment systems were $34.6 billion, with Panasonic as market leader. The growing opportunity here could double by 2017 and companies like NVIDIA can take a bigger bite of the market share from Panasonic.

Targeting to be a leader in PC gaming

As already stated, the rebound in the PC market is providing a tailwind to the company's growth prospects. The gaming industry is worth about $100 billion annually. This market is spread across mobile devices, consoles and PCs. Last year, Xbox and PlayStation 4 were launched, which created a boom in console gaming revenue, but the PC market which is said to be declining in the past has a bigger market than console gaming. The major market of PC gaming comes from the Asia Pacific region and it is estimated to be a $15 billion industry, while in North America, it amounts to around $3.9 billion.

NVIDIA continues to benefit from the rebound of the PC market which led to growth in PC gaming market. Revenue from GeForce gaming GPUs increased 15% in fiscal 2014. The company's market share in discrete GPUs is also rising to an effect that NVIDIA now holds 65% of the market share in this segment. Back in 2010, this was an even market with AMD, but now the gap is widening every year

Outperforming its competitors

This is a segment where NVIDIA anticipates a rapid growth and may out perform its competitors. The latest Maxwell based notebook GPU is slimmer and lighter with higher battery life due to Maxwell's enhancement of energy efficiency. Maxwell is based on Kepler architecture that competes with AMD's Radeon R9 270. On the power efficiency front, it beats its competitor AMD's Radeon, but we don't see a huge speed gain in the new Maxwell GPU. Finally on the price front, it is much cheaper than Radeon with two variants priced at $119 and $149, compared to $179 for Radeon.

A better choice

NVIDIA mainly concentrated on the GPU market while AMD was bootstrapped with its focus on CPUs & GPUs and also to some extent on gaming consoles. As AMD's focus was distributed, NVIDIA only concentrated on the specialized market of GPUs and stimulated itself to be market leader in graphic cards and GPUs.

Research and Development is the platform for any successful product development and enhancement. NVIDIA is extravagant on this. Its R&D budget enables it to churn out products that are innovative.

Conclusion

NVIDIA's latest products are doing well and its business has turned around. Its future looks bright with its new GPU, making it a good buy.

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Stocks Going Ex-Dividend on Wednesday, November 5 (PFE, EVEP, More)

Ex-dividend dates are very important to dividend investors, since you must purchase a stock prior to its ex-dividend date in order to receive its upcoming dividend payout. For more information, check out Everything Investors Need to Know About Ex-Dividend Dates.

Below we highlight 10 big-name stocks going ex-dividend on Wednesday, November 5.

1. Pfizer

Pfizer (PFE) offers a dividend yield of 3.44% based on Monday’s closing price of $30.19 and the company's quarterly dividend payout of 26 cents. The stock is 1.44% year-to-date. Dividend.com currently rates PFE as “Recommended” with a DARS™ rating of 3.5 stars out of 5 stars.

2. EV Energy Partners L.P.

EV Energy Partners L.P. (EVEP) offers a dividend yield of 9.62% based on Monday’s closing price of $32.23 and the company's quarterly dividend payout of 77.4 cents. The stock is down 5.01% year-to-date. Dividend.com currently rates EVEP as “Recommended” with a DARS™ rating of 3.5 stars out of 5 stars.

3. Alliance Resource Partners L.P.

Alliance Resource Partners L.P. (ARLP) offers a dividend yield of 5.16% based on Monday’s closing price of $49.40 and the company's quarterly dividend payout of 63.75 cents. The stock is up 28.31% year-to-date. Dividend.com currently rates ARLP as “Recommended” with a DARS™ rating of 3.5 stars out of 5 stars.

4. Enbridge Energy Partners L.P.

Enbridge Energy Partners L.P. (EEP) offers

Saturday, November 1, 2014

K12 Inc. Beats And Still Goes to the Principal’s Office? Here’s Why

Investors in K12 Inc (NYSE: LRN  ) should have been rejoicing when the company reported earnings yesterday. Instead, the stock fell by as much as 14%.

Consider all the good news:

Revenue ($237 million) and earnings (loss of $0.18 per share) figures both came in ahead of expectations. The company met its updated enrollment goals set in early October. The mid-point of revenue guidance offered by management was above analyst expectations.

If you go back to the earnings preview I published on the company earlier this week, you could be forgiven for being completely baffled by these results.

But one very important piece of information was buried at the end of the company's release that should give all Fools reason to pause.

A business shift that doesn't look good for shareholders
As you know, K12 has been forced to acknowledge that there are other options out there for students who want to learn via on-line schools. CEO Nate Davis, in a recent conference call, had this to say:

We're ... seeing more traditional school districts offering their own full-time online programs, along with supplemental learning options and online summer courses ... these market dynamics have also created a challenge to enrolling students in our traditional managed programs.

But Davis said the company could be nimble on its feet, focusing on growth in non-managed programs to make up for the shortfall. In essence, the difference between managed programs (which has been K12's historical focus) and non-managed programs is that in the latter, local school districts provide instruction and management while relying on K12's technology platform and content.

In managed programs, K12 covered all of these bases.

As I mentioned in my earnings preview: "it's not quite clear how margins will be effected in the long run by a shift toward non-managed programs."

I may have been wrong to say "margins" instead of "revenue", but the news from K12's release is clear: non-managed programs bring in a lot less money. Here's what I mean

Revenue per enrollment
Currently, non-managed students only make up 15% of all students under the K12 banner, but they are the supposed "growth driver" moving forward.

Enrollment Trends | Create Infographics

The problem is that the total amount of revenue K12 gets per student for non-managed programs is much lower -- like a whopping 70% lower!

Revenue per Student: Managed vs. Non-Managed | Create Infographics

Adding insult to injury, revenue trends for the non-managed programs are heading south, and were down 17% from last year.

CEO Davis said that the company still believes it can grow managed programs over the long-term. With K12 still trading for about 29 times earnings, it will need to fulfill that promise.

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